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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Challo Jeregy who wrote (17451)	6/15/1999 4:07:00 PM
From: KM	Respond to of 99985

Option Index Puts Look Precarious Heading Into Expiration By Erin Arvedlund Staff Reporter 6/15/99 1:40 PM ET If you haven't already, today -- right now, in fact -- might be a good time to close out those June index option puts. According to options strategists, the stock market is likely to move drastically in either direction before Friday's expiration, keying off of Wednesday's much-anticipated release of the May Consumer Price Index figures, and prices for puts on equity index options will move correspondingly. "In short, the market is probably going to get rocked," said Scott Fullman of Swiss American Securities. Also on Thursday, Federal Reserve Chairman Alan Greenspan is slated to testify before the Joint Economic Committee of Congress, which could further upend the market. Volatility Index Today % Change 26.09 +1.30% Source: ILX Index option puts mostly are used as insurance for broad stock portfolios, but on expiration week they take on a more speculative nature. At this point in the game, investors appear to be holding on to June index options until the important economic news filters into the market. Kyle Rosen of Rosen Capital Management justifies closing those puts this way: "If the CPI number comes in as expected, say around 0.2% to 0.3% or worse, at 0.5%, which would be terrible, we'll see a big drop tomorrow. People are afraid to unload their puts today because the numbers aren't out yet." That's the wrong kind of thinking, he adds. "Whether the numbers are good or bad, investors holdings these things are going to take profits. If the CPI is high, they'll take profits; if it's flat, they'll just dump them, and prices will collapse anyway as they get out before expiration" on Friday. "So if you're holding these puts, it wouldn't be a bad idea to sell them by the end of the day." Put/Call Ratio Today (Noon) Previous Close 0.43 0.52 Source: ILX Among the Standard & Poor's 500 index options, for instance, the series with the largest open interest is the June 1350 contract. At-the-money options "generally have the largest open interest going into an expiration," said Greg McMurran at Analytic Investors in Los Angeles. "This month it's high but not out of range," he added. In a Monday piece of research, Merrill Lynch noted that there is a heavy open interest in near-the-money June S&P 500 Index options for the strikes between 1275 to 1325. But by Tuesday, the open interest in June 1350 S&P 500 index puts collectively totaled about 41,000 contracts. The price was down 12 ($1,200) to 43 ($4,300). Among the most actively traded index puts, however, were the June 1300 puts, down 8 1/2 ($850) to 7 1/2 ($750) on volume of 1,786 and open interest of 35,000 contracts. The S&P 500 was up 16.1 to 1310.1 at midday. --------------------------------------------------------------------------------